On 6 July 2022, the Energy Security Bill was placed before Parliament by Business and Energy Secretary Kwasi Kwarteng. The overarching aim of the Bill is to deliver a cleaner, more affordable and more secure energy system in the UK. But what does it say and how does it fit with the British Energy Security Strategy?
The Bill contains 26 measures falling under three main themes:
- Reforming the UK energy system to protect consumers from unfair pricing.
- Leveraging private investment in clean technologies and building a domestic energy system not reliant on other energy producing countries.
- Ensuring the safety, security and resilience of the UK's energy system.
The following themes are particularly relevant to oil and gas companies operating in the UK:
Hydrogen & Carbon Capture Storage (CCS)
The Bill aims to make carbon capture, utilisation and storage (CCUS) and low carbon hydrogen more attainable, and strives to attract investments to meet the aim of net zero carbon emissions. Low carbon hydrogen is an important resource which could be used as an alternative to high carbon hydrogen in industries such as transport and power. The government aims to support this by the creation of the Industrial Carbon Capture (ICC) business model.
This business model gives the Secretary of State power to provide long term financial assistance to support the development of CCUS and low carbon hydrogen production. We have already seen the publication of the proposed updated industrial carbon capture (ICC) and dispatchable power agreement (DPA) business models, including draft terms and conditions, front end agreements and gain share schedule and guidance for the DPA, in April 2022.
In terms of investment opportunities, the Net Zero Hydrogen Fund (NZHF) will provide £240 million to support hydrogen production projects with upfront costs, increase private sector investment and develop the projects needed to deliver low carbon hydrogen by 2030. There is also a £1 billion CCS Infrastructure Fund which will be created to fund the costs of creating CCUS infrastructure. This should act as a stimulus to companies considering developing or engaging with existing CCUS projects, despite the windfall tax.
The Default Tariff Price Cap places a restriction on the amount that energy suppliers can charge customers for each unit of gas and electricity and places a limit on the maximum standing charge consumers pay for access to the grids. While this does not apply directly to oil and gas companies it is intrinsically linked to energy security and the economic viability of projects.
The price cap was a temporary measure enforced by the government whilst competition in the market for energy supply was not satisfactory and was due to expire in 2023. However, this Bill allows for it to be extended beyond 2023 if certain conditions are met.
The government relies on research that has found that if the price cap expired in 2023, without adequate competition between energy suppliers, then this would negatively impact millions of households. As such, this legislation allows the price cap to extend beyond 2023 where the Secretary of State finds that the conditions for effective competition between energy suppliers have not been met. The level of the cap would continue to be set by Ofgem.
In recent years there has been significant disruption to oil supply caused by protests. This Bill proposes to reduce this by allowing the Secretary of State to prevent "malicious protests" that would disrupt oil terminals or filling stations. This would give greater security to businesses which supply oil as disruptive protests could be prevented. However, if this Bill passes there will almost certainly be litigation considering whether such a measure infringed the freedom of expression rights of protestors. It is interesting to note that this comes after the controversial Police, Crime, Sentencing and Courts Act 2022 (which was, itself, subject to various challenges) and during suggestions that the Human Rights Act will be replaced in the UK.
Tom Thackray, Director of the Confederation of British Industry's Decarbonisation, notes that the Bill's measures help "accelerate a shift to net zero power whilst growing key green technologies like CCUS and hydrogen." Whilst improving the financial viability of investment in cleaner energy, these measures also help ensure security of energy supplies for consumers and a reduction of the price of energy for consumers in the long run, which ties in with the British Energy Security Strategy.
While the Bill has some way to go before it receives Royal Assent and enters into force, it is likely to have a significant impact on oil and gas sector, and the energy sector more widely.